With lawsuits on the rise, employers must do all they can to stay ahead of the employment curve and to make compliance with 2012 labor laws a priority in the new year. The challenge for small employers, however, is understanding and complying with the multitude of regulations that affect their business. Particularly in certain states, such as California, employment laws are overwhelming and can be significantly different than their federal counterparts.

Outsourcing Human Resources with a PEO

There is a solution! In a Professional Employer Organization (PEO) relationship, the business owner outsources human resources administration to the PEO and relies heavily upon the PEO firm to to stay abreast of changing laws and regulations. The PEO/HRO firm provides clear direction and support, assisting them in all areas of HR compliance. Typically, clients are assigned a Human Resources expert to personally help them understand the law, and how the law impacts their business and employment practices. HR consultants provide support in all of the following areas:

• Resolving employee complaints
• Fielding general inquiries
• Performing terminations
• Assisting in exit interviews
• Assisting with investigations
• Auditing employee files and records
• Conducting salary surveys
• Speaking confidentially with employees regarding complaints or grievances.

Studies show that businesses that offer an outlet for employees to speak to professionals not only experience a reduction in lawsuits, but also lower health insurance costs, turnover, and workplace injuries.

The PEO also assists businesses comply with HR forms, documents, and employee management. They review the client’s current Employee Handbook and Policy Manuals, and update it to enhance compliance with all mandatory state and federal guidelines. By taking a hands-on, proactive approach, clients enjoy increased protection against unnecessary and expensive employment litigation.

EPL Insurance

Finally, most PEOs offer Employment Practices Liability Insurance (EPLI). EPLI is a comprehensive insurance that provides protection to employers against a wide range of employment practices and is designed to cover certain claims and lawsuits brought by employees alleging wrongful termination, discrimination, unlawful harassment, and other related torts, including but not limited to:
• Discrimination • Wrongful employment decision or act • Comprehensive omnibus wording • Wrongful termination or demotion • Sexual and non-sexual harassment • Wrongful demotion • Assault and battery.

While companies have long recognized the value of General Liability or Errors and Omissions insurance, many now understand the importance of EPLI.

In short, a PEO relationship can help employers in all aspects of their employment compliance, significantly reducing the chance of being the victim of an employee lawsuit. Perhaps investigating how a PEO can help protect your business should also be a priority in 2012.

One solution to effectively manage employment costs is to outsource human resources administration to a Professional Employer Organization. A Professional Employer Organization, or PEO,  helps small employers reduce costs in all of these areas utilizing the following two methodologies:

• Accessing the PEO firm’s Economies-of-Scale
• Consolidating vendors and streamlining operations

Economies of Scale.

Economies-of-scale is the method through which a PEO pools resources, thereby procuring discounted rates and passing those rates onto their clients. It is the primary method through which a PEO can reduce an employers’ HR-related costs. Small employers, those with fewer than 500 employees, have limited buying-power for purchasing workers’ compensation, are often limited in the variety and scope of health insurance plans they can offer their employees, and overall have less flexibility and expertise when it comes to administering these plans. The PEO pools hundreds, sometimes thousands of businesses, and is able to aggregate workers’ compensation insurance, health benefit plans, and retirement plans. The PEO establishes close working relationships with large regional insurance companies and is in the position to offer more robust plans, with lower premiums.

The PEO is also able to provide insurance carriers greater stability to their insurance plans.  The pooled employees come from a broad range of industries and geographic areas which serve to stabilize and diversify the risk and premiums over the long-term. This provides the PEO greater negotiating power at renewal, enabling them to keep renewal rates below market averages.

Beyond rates and vendor relationships, PEOs can successfully support health and wellness programs that can help maintain low insurance premiums into the future. Most PEOs offer Work/Life balance programs, health and wellness incentives, or discounts to health clubs and gyms. A healthy lifestyle in and out of the workplace can make significant, positive impacts on the utilization and expense of future health insurance premiums.

Vendor Consolidation and Streamlining Operations.

Another method through which PEOs help employers reduce human resources overhead is by helping them streamline their internal administrative operations. When businesses join a PEO, they in effect combine many vendors under one roof, thereby eliminating the need to maintain relationships with multiple vendors.

A full-service PEO can provide all of the following services, often at a reduced cost:

• Assistance with labor law and employment compliance
• Creating and reviewing employee handbooks & policies
• Payroll processing and tax services
• Risk management and safety consulting
• Workers’ Compensation insurance
• Health insurance plans & administration
• 401 (k) and Cafeteria 125 Plans
• Management Training
• Recruiting services

These combined services streamline the client’s internal operations and enable their existing staff to more efficiently focus on core business functions. A single individual within the client’s organization is usually all that is needed to liaise with the PEO which reduces the need for multiple employees to maintain multiple relationships with different vendors. Some companies experience such a drastic reduction in administrative overhead that they are able to reduce headcount, or reallocate resources to more valuable, revenue-generating tasks.

In our next post, we will analyze HR strategy #2: Reducing Employment Risks

In contrast to many other company videos out there, we won’t be throwing any industry-babble, marketing-laden messages at you. Instead, we will take you on a personal, inside look at the real-life people behind CPEhr that have made us a Human Resources Outsourcing and PEO industry leader for the past 30-years. Take a look!

The survey, conducted by HfS Research and the London School of Economics, finds that 31% of business already outsource human resources and are looking to increase outsourced services over the next year. An additional 15% do not currently outsource, but are looking to begin outsourcing various HR functions in the coming twelve months.

What is the driver for these businesses to outsource human resources?

It is no secret that in lean economic times, business owners are pressed to identify expenses within an organization that can be reduced or minimized. Employment overhead (payroll, taxes, workers’ compensation insurance, employee benefits, governmental compliance, and other employee-related cost centers) typically comprise the single highest area of expense within a company. More than rent, or facilities operations, or equipment, or compliance, human resources administration and expenses weigh heaviest on the business’s bottom line.

By engaging a human resources outsourcing firm, the business owner is able to reduce employment costs in three primary ways.

Streamlined HR Systems

HRO firms offer streamlined human resource systems to their clients, significantly minimizing management’s time in overseeing daily administrative tasks. Non-productive “paper pushing” can be outsourced to the HR firm, enabling key staff to focus on their core competencies. Processes such as payroll processing, tax filing and compliance, Unemployment Claims administration, workers’ compensation management, and employee benefits enrollment and management can all easily and efficiently be outsourced. The HRO firm rolls the client’s administrative processes into their existing systems, offering seamless management at a fraction of the cost.

Cost effective insurance products.

Small businesses are at a significant disadvantage when it comes to purchasing insurance products for their employees. Both workers’ compensation insurance and employee benefits have become a significant financial burden on employers. While a small employer is limited in the range of benefit plans and insurance offerings they can provide, HR Outsourcing firms forge relationships with large regional and national insurers. Through these relationships, and the resulting economies-of-scale, HROs offer their clients richer, more cost-effective insurance plans.

Reducing employment risks

Government compliance and regulations continue to grow in complexity and scale. Month after month, new case law is created and many of these decisions directly impact employers on the ground. From wage and hour issues, to discrimination restrictions, to protected classes of employees and new disability guidelines, employers often walk through a minefield of risk. Without dedicated human resources personnel or legal counsel, it is likely a business will be faced with some form of an employment lawsuit in the coming years. With close to 100,000 employment claims filed in 2010 (the highest on record!), employers recognize the risk and are turning to Human Resource Outsourcing firms to assist them in managing these risks. HR firms employ teams of experts in a wide range of disciplines and are able to provide accurate and timely advice to assist their clients avoid expensive employment lawsuits.

Human Resources Outsourcing may not be the solution for every employment need. However, for most employers with less than 200 employees looking to reduce employment expenses and overhead, outsourcing human resources may be exactly what their organization needs.

1. Why would a business use a PEO?

All business owners want to focus their time and energy on the “business of their business” and not on the “business of employment.” Most business owners don’t have the necessary human resources training, payroll and accounting skills, knowledge of regulatory compliance, or background in risk management, insurance and employee benefit programs to meet all the demands of being a good employer. Even for the business that has a human resource department, the PEO provides valuable and complementary expertise and services.

Additionally, PEOs provide worksite employees with coverage under the entire spectrum of employment laws and regulations, including federal, state, and local discrimination laws, Title VII of the 1964 Civil Rights Act, Age Discrimination in Employment Act, ADA, HIPAA, Equal Pay Act and COBRA. In some cases, these laws would not apply to workers at small businesses without the PEO relationship, since many statutes have exemptions based upon the number of workers in a work force. Once included in the PEO’s workforce, the workers are protected by these laws.

2. In a PEO arrangement, does the business owner lose control of his or her business?

Absolutely not! The client retains ownership of the company and manager the day-to-day activities of the workers.

3. What is the difference between a temporary staffing service and a PEO arrangement?

A temporary staffing service provides workers to its business clients to meet temporary or longer-term staffing needs. A PEO provides employment services to help its business clients with its existing workers and future hires.

4. What types of business would use a PEO?

The average client of NAPEO members is a small business with an average of 20 employees. Increasingly, larger business are signing up, too. Clients range from accounting firms and high-tech companies to manufacturers and government agencies.

5. Why would a worker want to PEO as an employer?

Many PEOs provide exceptional employee benefits including health benefits, retirement savings plans, and aggressive workplace risk management. Job security is improved as the PEO’s economies of scale permit a business to lower employment costs. Job satisfaction and productivity increase when workers are provided quality human resource services.

If you are considering utilizing a PEO, or other Human Resources Outsourcing arrangement, we encourage you to contact us for a free HR consultation to determine your organization’s precise employment needs.

The obstacles faced by many businesses in achieving these goals are the limitation of time, resources, and manpower to effectively improve their HR infrastructure. The level of expertise and know-how required to impact the HR systems is usually beyond their means. More often than not, these critical areas are left by the wayside as other tasks dominate management’s time and energy.

The HR Outsourcing Solution

A solution that has been growing in popularity over the past decade has been to bypass the conflict completely, by outsourcing the complex, time consuming, or unproductive tasks relating to employee administration. The Human Resources Outsourcing industry has continued to grow in recent years, despite the global recession.

Human Resources Outsourcing can take on many appearances, from complete end-to-end processes, to specific, discreet functions. But in the end, they all share the same principle: by entrusting non-core, non-revenue generating tasks to an outside expert or firm, the business can comfortably focus on other critical areas, assured their human resources systems will be managed professionally and efficiently.

**Just Released** – 7 Client Success Stories

Over the past 3 decades, CPEhr has successfully helped small employers throughout the state of California, and across the nation, manage their employee administration more efficiently, and cost effectively. We encourage you to read seven real-life stories of businesses that were ready to think out-of-the-box and utilize HR Outsourcing in their company.

Download your free copy of:

“HR Outsoucing: 7 Business Success Stories“

Background and Business Challenges

This Woodland Hills, California-based real estate investment company was founded in 1980. It grew to 35 employees and focused on property development and management throughout Southern California. Shortly after joining the firm in 2007, their new CFO quickly identified four critical challenges within the organization which needed to be quickly addressed.

Payroll. The processing and production of payroll was being handled by an outside CPA firm. The CPA was charging exorbitant fees for the preparation of payroll, electronic tax deposits, quarterly tax returns, annual tax returns, and W2′s. Despite the excessive fees, the CPA firm had no system for tracking vacation, sick and other time off, and the organization constantly found itself requesting information that was unavailable.

Medical Benefits. Any questions, clarifications or employee health benefit issues needed to be handled through an outside broker or directly with the insurance company. All of the health plan administration was being managed through the organization’s accounting department. This process was extremely time consuming and did not provide them with accurate results. “The process caused a great deal of stress to myself, my department, and other employees within the company,” explains the CFO. “I knew we had to make a change”. Additionally, their benefit premiums were extremely expensive. It was one more reason they needed to look for alternative health care solutions.

Workers’ Compensation. While they did not face excessive workplace injuries, there were several incidents that required attention from the insurance company. They found that claims were not being addressed satisfactorily from their insurer, and as a result, faced increases to their workers’ compensation insurance premiums.

Employee Management. Lacking a dedicated personnel department, the company did not have proper Human Resources systems established. Employee termination issues were not handled properly, many employees’ exempt vs. non-exempt statuses were questionable, and employee personnel files were in disarray.

“There was no way we could continue managing our HR responsibilities as we were,” says the CFO. “We began researching alternative HR management options. After extensive research and interviewing five HR providers, we selected CPEhr to help us.”

HR Solutions

CPEhr conducted an initial consultation to determine which service package would best fit the needs of their company. While they offer a range of HR programs – from “A La Carte” consulting to a full HR Outsourcing solution – the CPEhr Consultant determined the client required the complete Co-Employment service model through the PEO (Professional Employer Organization). The PEO program includes payroll and tax administration, human resources management, workers’ compensation and safety services, and full range of medical and voluntary employee benefit packages.

The first step was to provide each employee with a new employment packet, including I9’s, W-4’s, general information sheet, and other mandatory state and federal documentation. The client’s management team then reviewed the benefit options with the CPEhr Benefits Representative, discussed options, and selected a variety of HMO and PPO plans to offer their staff. Finally, the Business Implementation team conducted an Employee Orientation with all their existing staff and assisted them in completing the paperwork and enrolling them in their new benefit programs.

Once on-board, CPEhr provided the client with a dedicated Human Resources Representative that acted as their primary liaison with all other CPEhr departments – Workers’ Compensation, Benefits, Payroll and HR. One by one, each employment challenge was addressed, and solved:

• Payroll was processed accurately and timely, and all paid-time-off benefits were tracked and managed;
• Health benefit premiums were significantly reduced;
• All employee benefit issues were managed by a CPEhr Benefits Representative who acted as the intermediary between the client and insurance carrier;
• Workers’ Compensation premiums were significantly reduced, and a Claims Manager was assigned to address all future workplace injuries;
• Employee files were updated and all exempt and non-exempt status questions were resolved.

Tangible HR Results

To cover the services provided, CPEhr charged a monthly administration fee as a percentage of payroll. “The administrative fee charged by CPEhr was most reasonable,” reflects the CFO. “It provided our company a significant cost savings in both hard and soft costs.”

Offsetting the fee were reductions in workers’ compensation, health and other benefit premiums, consolidated vendors under a single roof, streamlined employment processes, and a reduction in employment risk.

“Beyond the savings, CPEhr protected our company against making bad employment decisions and running inefficient HR systems. They provided exemplary advice on employee termination issues and kept us out of trouble on numerous occasions. Joining CPEhr was probably the best business decision our company ever made.“

The LA Business Journal judged candidates based on their “exceptional legal skill and achievement across the full spectrum of in-house responsibility, exemplary leadership as evidenced by the highest professional and ethical standards, and for contributions to the Los Angeles community at large.”

Mr. Sable was nominated for the award by Faith Branvold, President of CPEhr.  “Joshua Sable is a consummate professional.  My long-time dream came true when Josh became our in-house counsel, after twelve years of working with CPEhr.”

Mr. Sable has close to 20 years of experience handling legal matters for business owners and he brings an additional layer of experience and expertise to CPEhr’s Human Resources infrastructure which provides employment support and human resources services to its hundreds of clients and over 15,000 worksite employees.

He is an experienced trial lawyer, having litigated various matters in both State and Federal court. While in private practice, Mr. Sable focused on employment discrimination, wage and hour, trade secrets, non-compete and union matters. He also has experience in the defense of class action lawsuits and has represented clients in unfair labor action proceedings before the National Labor Relations Board.

“Josh understands the law extremely well,” says Branvold, “But he also understands the needs of a business. He is very creative in finding solutions, yet never will breach ethical standards or his moral beliefs. These characteristics are extremely beneficial when we are working with clients to assist them with issues and provide solutions to their challenges. Josh is very focused on us, our business, our clients, and our cumulative success.”

Consider HR Outsourcing for your business

1. Is your employee handbook up-to-date?
2. Do your managers understand and comply with progressive discipline practices?
3. Do you have detailed job descriptions to hold employees to objective standards?
4. Do your Human Resources practices reduce your liabilities as an employer?
5. Are you prepared to adapt to changes in Human Resources/Benefits regulations?

If you answered No, or I’m Not Sure, to any of the questions above, you may be placing your company in jeopardy. Recent reports support the tale that during an economic downturn, employment lawsuits rise. A recent overview of the legal landscape by The Legal 500, a 20-year old publication providing comprehensive worldwide coverage on legal services providers, confirmed this fact:

The onslaught of wage and hour litigation continues unabated, although the focus has now turned to cases of greater complexity or those relating to specific industries such as pharmaceuticals or construction. The other main development in this area is the increase in litigation resulting from widespread reductions in force. As the hostile economic climate of 2009 forced workers to scrutinize the reasons for their termination in more detail it made them more likely to pursue claims of wrongful termination when they couldn’t secure employment elsewhere. Along with these trends, new legislation continues to fuel changes in the employment landscape.

What are you doing to protect yourself?

In our next post, we will discuss two cost-effective ways employers can protect themselves from the ever-growing tide of employment lawsuits.